Korea fires a warning to business elite by jailing boss

The most notorious businessman in South Korea has been jailed for embezzlement
in a landmark ruling that warns the country’s elite they are no longer above
the law.

From the 1960s to the 1990s, the “chaebol”, Korea’s sprawling, family-run business empires, leveraged close government ties to transform their once poverty-stricken nation’s economy.Photo: ALAMY

By Andrew Salmon, in Seoul

7:10AM BST 17 Aug 2012

Kim Seung-youn, chairman and son of the founder of Hanwha Corp, South Korea’s 10th largest conglomerate, was yesterday convicted of using company funds to pay off debts of $254m (£162m) that he and his brother had incurred. He was sentenced to four years and fined $4.5m.

The 60 year-old gained infamy in 2008 after enlisting company security guards and gangsters to kidnap bar workers who had been in a fight with one of his sons. Kim then beat one of the workers with a metal pipe. Although others involved were jailed over the incident, the chairman’s sentence was 200 hours of community service.

He had previously been found guilty of illegal foreign exchange transactions.

Kim’s jailing has ramifications far beyond Hanwha. While their slick products and stylish marketing have made the likes of Samsung and Hyundai household names worldwide, the companies have a mixed reputation at home.

From the 1960s to the 1990s, the “chaebol”, Korea’s sprawling, family-run business empires, leveraged close government ties to transform their once poverty-stricken nation’s economy. Today, their hi-tech exports are the key engine of corporate Korea.

But domestically, chaebol stand accused of bribery, bullying small businesses and abusing shareholder rights. The families of company founders, now in their second and third generations, are frequently tried for crimes such as embezzlement, slush funds and illegal wealth transfers.

The heads of Korea’s top companies, Lee Keun-hee of Samsung, and Chung Mong-koo, of Hyundia Motor Group, have both been indicted for white-collar crimes.

However, with Korea’s elite being closely connected to the business giants, the chairmen have escaped with fines, suspended sentences and presidential pardons. Respected website Chaebul.com says that since 1990, courts have given suspended sentences to seven executives from the top 10 chaebol. This “royal family” status of the chaebol elite, and their immunity from justice, irks many Koreans.

“The judiciary has been a 'revolving door’,” said Dr Steven Kim, of Transparency International’s Seoul office. “When judges and prosecutors retire, they work for big companies.”

With “economic democratisation” a buzzword ahead of December’s election, society is fed up with the leniency enjoyed by the untouchables.

Even so, the Hanwha chairman’s sentence falls short of the nine years demanded by prosecutors, and there is no certainty he will serve even that as he plans to appeal. Should that fail, annual presidential pardons are due at the end of the year.

Other chaebol chairmen are almost certainly watching with interest. Chey Tae-won, head of SK Corp, Korea’s number three chaebol, is awaiting judgment on embezzlement charges, which he has denied. In 2003, he had been found guilty on a separate embezzlement rap, but after serving seven months in jail was released and reinstated at the head of SK.